The share of Macy’s (NYSE:M) jumped as much as 5.6 percent in the morning after Greenlight Capital, the hedge fund led by David Einhorn, announced its long position in Macy’s in the fourth quarter.
The report showed that the average cost of the position is around $45 a share, which is higher than today’s price. Greenlight said that the retailer could be a takeover target because the price is so low now.
“Now, with the stock closing the year at $34.98, the math might make more sense. While it's unlikely that management will reverse course on its own, it wouldn't surprise us if a private equity firm teamed up with a REIT to buy the company and unlock the value privately.” Greenlight said in a letter.
Activist investor Starboard Value, another hedge fund that takes stakes in Macy’s, has been pushing Macy’s to set up a joint venture to separate its properties since July. But Macy’s rejected the idea last year. Greenlight said that Macy’s might change its mind and accept the deal, because the situation is different. Macy’s has lost more than half their value since July last year.
“Even if this doesn't happen, the shares are cheap at 5x EBITDA, 7x equity free cash flow, and less than 9x 2015 EPS, with a healthy balance sheet and strong history of share repurchases.” Greenlight said in a letter.
According to Bloomberg, Greenlight Capital lost 20.2 percent in 2015, but it still made an average of 16.5 percent a year for its investors since Einhorn began the fund in 1996.